List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications and paragraph modifications that would be necessary. For each situation, select the best answer for the type of opinion and modifications the auditor would normally select. Assume all amounts are material to the financial statements and may or may not be pervasive. If different reports might be required, list them both. In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient competent evidential matter regarding this investment cannot be obtained. Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. A company’s inventory records were deficient and the auditor was required to satisfy herself that the inventory was properly stated using alternative procedures. She is satisfied with the results of those procedures. A company changes from FIFO to LIFO for inventory valuation and the auditor concurs with the change. The change has a material effect on the comparability of the entity’s financial statements this year, but is expected to have an immaterial effect in the future. An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles. List A - Types of Opinions List B - Report Modifications A. Standard unmodified i. Add an emphasis of matter paragraph B. Unmodified ii. Add a basis for modification paragraph C. Qualified iii. Make no modifications D. Disclaimer E. Adverse

List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications and paragraph modifications that would be necessary. For each situation, select the best answer for the type of opinion and modifications the auditor would normally select. Assume all amounts are material to the financial statements and may or may not be pervasive. If different reports might be required, list them both. In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient competent evidential matter regarding this investment cannot be obtained. Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. A company’s inventory records were deficient and the auditor was required to satisfy herself that the inventory was properly stated using alternative procedures. She is satisfied with the results of those procedures. A company changes from FIFO to LIFO for inventory valuation and the auditor concurs with the change. The change has a material effect on the comparability of the entity’s financial statements this year, but is expected to have an immaterial effect in the future. An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles. List A - Types of Opinions List B - Report Modifications A. Standard unmodified i. Add an emphasis of matter paragraph B. Unmodified ii. Add a basis for modification paragraph C. Qualified iii. Make no modifications D. Disclaimer E. Adverse

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient competent evidential matter regarding this investment cannot be obtained.
Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate.
A company’s inventory records were deficient and the auditor was required to satisfy herself that the inventory was properly stated using alternative procedures. She is satisfied with the results of those procedures.
A company changes from FIFO to LIFO for inventory valuation and the auditor concurs with the change. The change has a material effect on the comparability of the entity’s financial statements this year, but is expected to have an immaterial effect in the future.
An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles.

List A - Types of Opinions		List B - Report Modifications
A.	Standard unmodified		i.	Add an emphasis of matter paragraph
B.	Unmodified		ii.	Add a basis for modification paragraph
C.	Qualified		iii.	Make no modifications
D.	Disclaimer
E.	Adverse

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